Gold News

Spot gold starts Monday at 27-year high; IMF chief warns of "serious crisis" in finance

Spot Gold Prices dipped 30 cents below the $700 mark in Asian trade on Monday, only to spike sharply higher before opening the week in London above $706 per ounce – the highest weekly start since Sept. 1980.

"The overhead resistance didn’t count for much with the gold price roaring ahead and pushing all technical factors aside," says Phil Smith for Reuters India's technical report today.

Fifteen out of 26 gold-market professionals surveyed worldwide by Bloomberg now expect the Gold Price to move higher again this week. Only four advise selling, while seven are neutral.

Another survey by the newswire says that bond-fund managers expect the US Federal Reserve to cut Dollar interest rates at least twice before Christmas, despite the inflationary threat posed by crude oil prices – trading at a 5-week high early on Monday – and the growing global wheat shortage.

Wheat futures rose to a new all-time high in Asian trade today, more than double last Sept.'s price and adding nearly 9% last week after the 23% rise seen in Aug.

The US Dept. of Agriculture says that global stockpiles will fall to a quarter-century low by the end of May '08. "Global supplies of wheat are very short," says Takaki Shigemoto, analyst at Okachi & Co. in Tokyo. "At the same time, we can't see any sign of slowing demand."

In Tokyo, the Nikkei stock index dropped 2% by today's close – ending at a three-week low – while gold futures traded at the Tocom slipped 0.6% to equal to $709.52 per ounce.

The Japanese currency also pushed back the Dollar, driving the US currency to a three-week low beneath ¥113. Come the start of London trade, the Dollar then dropped to a new one-month low against the European currencies, with the Euro buying just less than $1.3800. One Pound Sterling equaled $2.0300.

That put the Gold Price in Pounds Sterling at £348, while French and German investors looking to Buy Gold Today saw it trade just shy of €512 per ounce. The major European stock markets began little changed despite equities in the Asia-Pacific region closing 1.7% lower.

US Treasury bond prices continued to rise, pushing the 10-year yield to its lowest in 19 months. "People are rushing into Treasuries," said one Tokyo trader to the newswires earlier. "Investors want liquidity."

But foreign governments, especially those growing rich on oil revenues and the US trade deficit, are looking to cut back on their Treasury bond investments. Bloomberg notes that China cut its US debt holdings by 3.4% during the second quarter. Taiwan cut its holding by 10% in the year-to-June. South Korea cut its holdings by 25%.

Western hedge-fund managers are also set to suffer a sharp drop in demand after reporting sharp losses in Aug. Rather than "hedging" the risk of a broader sell-off in the financial markets, the flagship fund run by Paul Tudor Jones dropped 5.5% for the month according to investor reports. His group's Raptor fund has now lost 9% of its value since Jan., while the Caxton group's leading fund, directed by Bruce Kovner, lost nearly 5% last month. Matthew Tewksbury’s $3bn investment fund fell by 8%.

The Spot Price of Gold, in contrast, has now gained 10% since the start of this year.

"This reckoning is probably a welcome one but it does not mean that it will be a painless one," says Rodrigo de Rato, managing director of the International Monetary Fund, of the turmoil in global credit markets. He told the Financial Times that the current credit crunch is a "serious crisis".

To learn just how this crisis came about, click here and read Investment Landfill now...

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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